## Facts

- Financial Performance Corporation authorized stock purchase warrants in 1993 for Rebot Corporation (up to 1,198,904 shares at $0.10 per share, expiring September 30, 1998) and for Marvin M. Reiss (500,000 shares at $0.10 per share, expiring August 31, 1998).
- The warrants were authorized in 1993 but were not physically delivered until November 21, 1995; the warrants were reflected in corporate records and regulatory filings, and plaintiffs knew they had been authorized.
- In August 1996, shareholders approved a one-for-five reverse stock split, reducing outstanding share counts to one-fifth while increasing the ownership interest represented by each share fivefold.
- The plaintiffs’ warrants did not address how a stock split would affect the number of shares purchasable or the exercise price.
- Plaintiffs attempted to exercise in 1998, claiming the right to buy the full pre-split number of shares at $0.10 per share; the corporation asserted the warrants must be adjusted to one-fifth the shares at five times the price ($0.50 per share).
- Plaintiffs sued for a declaration permitting unadjusted exercise and sought equitable relief extending the warrants’ expiration dates; the trial court dismissed the action and denied injunctive relief.

## Issues

1. When stock purchase warrants are silent on the effect of a later reverse stock split, must the warrants be read to include a proportional adjustment to both the number of shares and the exercise price?
2. Whether plaintiffs were entitled to equitable reformation extending the warrants’ expiration dates based on delayed physical delivery and related circumstances.

## Decision

- The Appellate Division modified the judgment to include a declaratory judgment for the defendant and otherwise affirmed dismissal.
- The court held that, absent evidence the parties intended a different treatment, the warrants were limited after the reverse split to a proportional adjustment in both share quantity and price.
- The court rejected plaintiffs’ demand to exercise for the pre-split number of shares at $0.10 per share.
- The court denied reformation/extension of expiration dates, finding no adequate basis for such equitable relief.

## Legal Principles

- When a contract shows intent to be binding but omits an essential term, a court may supply a reasonable term consistent with the parties’ objective intent and the commercial setting.
- For stock warrants affected by a reverse split, a proportionate adjustment to shares and exercise price may be implied to preserve economic equivalence and avoid an unintended windfall to warrant holders and dilution of shareholders.
- Equitable reformation to alter a warrant’s expiration requires a recognized equitable ground (such as mutual mistake or fraud); delayed physical delivery alone is insufficient when the holders knew of the authorization and the warrants were properly recorded.

## Conclusion

The court treated silence about reverse-split effects as a contractual gap and implied a proportional adjustment term, thereby denying plaintiffs the right to buy the pre-split share amount at the pre-split price and rejecting their request to extend the warrants’ expiration dates.


Reiss v. Fin. Performance Corp., 715 N.Y.S.2d 29 (App. Div. 1st Dep’t 2000)